Issue Date July 17, 2006 Audit Report Number 2006-LA-1013 TO: Jon L. Gant, Director, Office of Healthy Homes and Lead Hazard Control, L FROM: Joan S. Hobbs, Regional Inspector General for Audit, 9AGA SUBJECT: The Child Abuse Prevention Council of Sacramento, North Highlands, California, Did Not Adequately Administer Its Healthy Homes Initiative Grant HIGHLIGHTS What We Audited and Why We audited the Child Abuse Prevention Council of Sacramento (Council) in response to a request from the U.S. Department of Housing and Urban Development’s (HUD) Office of Healthy Homes and Lead Hazard Control. Our audit objectives were to determine whether the Council administered its Healthy Homes Initiative grant in accordance with HUD requirements and its grant agreement. More specifically, our objectives were to determine whether (1) grant expenditures were eligible and supported by adequate documentation, (2) the Council had implemented adequate financial management and record-keeping systems, and (3) the Council accomplished its grant goals. What We Found The Council did not adequately administer its Healthy Homes Initiative grant. As a result, $936,879 of the $1,027,477 in payment (reimbursement) requests submitted to HUD were for ineligible and unsupported costs.1 The Council also failed to implement and maintain an adequate procurement process, develop an adequate financial management system, or meet its grant performance objectives. What We Recommend We recommend that HUD require the Council to repay it from nonfederal sources $140,264 in ineligible expenses and $376,390 in unsupported expenses (for which reimbursement was previously received from HUD) unless it can provide adequate supporting documentation. Additionally, we recommend that HUD not pay the Council for outstanding reimbursement requests, consisting of $210,576 in ineligible expenses and $209,649 in unsupported expenses, unless it can provide adequate supporting documentation. Finally, we recommend that HUD deobligate all remaining grant funds including ineligible costs, any unsupported costs that cannot be documented, and the $472,523 unused balance remaining on the original $1.5 million grant. We also recommend that HUD not award the Council additional funding until it has implemented adequate financial management and procurement systems and can provide evidence that it has developed the organizational capacity to carry out a HUD grant. For each recommendation without a management decision, please respond and provide status reports in accordance with HUD Handbook 2000.06, REV-3. Please furnish us copies of any correspondence or directives issued because of the audit. Auditee’s Response We provided the Council a draft report on May 18, 2006, and held an exit conference with the Council’s officials on June 08, 2006. The Council provided written comments on June 23, 2006. It generally disagreed with our report. The complete text of the auditee’s response, along with our evaluation of that response, can be found in appendix B of this report. 1 $90,598 in claimed costs was determined to be eligible and fully supported. The Council has received reimbursement from HUD for only $606,125 of the claimed costs and is awaiting reimbursement for the other $421,352. The $606,125 is the sum of nine individual reimbursed drawdowns, while the $421,352 includes two prior rejected drawdowns. 2 TABLE OF CONTENTS Background and Objectives 4 Results of Audit Finding 1: The Council Claimed Reimbursement for $936,879 in Healthy Homes 5 Initiative Grant Costs That Were Ineligible or Unsupported Finding 2: The Council Did Not Meet Its Contract Performance Requirements 16 Scope and Methodology 20 Internal Controls 21 Appendixes A. Schedule of Questioned Costs and Funds to Be Put to Better Use 23 B. Auditee Comments and OIG’s Evaluation 24 C. Criteria 83 D. Schedules of Ineligible and Unsupported Expenses 85 E. Grant Agreement: Statement of Work 87 3 BACKGROUND AND OBJECTIVES The Healthy Homes Initiative is authorized under the fiscal year 2000 Appropriations Act and builds upon the U.S. Department of Housing and Urban Development’s (HUD) existing activities regarding housing-related health and safety issues, including lead hazard control, building structural safety, electrical safety and fire protection, and to address multiple childhood diseases and injuries related to housing in a more coordinated fashion. The program is designed to develop, demonstrate, and promote cost-effective preventive measures to correct multiple safety and health hazards in the home environment that produce serious diseases and injuries to children. The program provides funding for projects that demonstrate effective assessment and intervention methods as well as for research, public education (demonstration), and outreach efforts. The Child Abuse Prevention Council of Sacramento (Council), located at 4700 Roseville Road, North Highlands, California, incorporated in 1977 as a nonprofit organization. The Council was awarded a Healthy Homes Initiative grant (CALHH007500) for $1.5 million as part of the year 2000 Healthy Homes Initiative grant awards. The grant agreement was executed in March 2001. The nonprofit Council is organized to provide prevention, coordination, training, and community education outreach services to assist at-risk families. Its stated purpose is to coordinate and develop systems designed to prevent or effectively respond to situations of child abuse, neglect, or abandonment. The Council operates using various grant sources obtained primarily from federal, state, and local agencies. The Council created the California Alliance for Prevention (Alliance) in 1999 as a cost-efficient prevention program, implementing home visitation, family resource centers, and AmeriCorps members across numerous counties in California. The Healthy Homes Initiative was integrated into the Alliance model to provide greater access to the target population. Training, home visits, and family resource centers were supposed to provide education, prevention, and training on topics such as asthma awareness, lead-based poisoning, and a healthy home environment. Our audit objectives were to determine whether the Council administered its Healthy Homes Initiative grant in accordance with federal requirements and its grant agreement. More specifically, our objectives were to determine whether (1) grant expenditures were eligible and supported by adequate documentation, (2) the Council had implemented adequate financial management and record-keeping systems, and (3) the Council accomplished its performance objectives. 4 RESULTS OF AUDIT Finding 1: The Council Claimed Reimbursement for $936,879 in Healthy Homes Initiative Grant Costs That Were Ineligible or Unsupported The Council submitted reimbursement requests to HUD for $936,8792 for grant costs that were ineligible ($350,840) or unsupported ($586,039). We attribute the Council’s request for reimbursement of these significant ineligible and unsupported costs to inadequate knowledge of Healthy Homes Initiative requirements and responsibilities and related federal rules and regulations, a failure to adopt and implement appropriate procurement policies and procedures, and a failure to implement an adequate financial management system. These deficiencies prevented the Council from fully meeting HUD’s goals of providing education, prevention, and training to target families (see finding 2). The Council Claimed $257,500 in Ineligible AmeriCorps Training Fees Ineligible AmeriCorps Fees The Council claimed $329,500 in AmeriCorps training fees. This represented a claimed fee of $500 for each time (659 times) an AmeriCorps member attended a grant-related training session. However, based upon our analysis of the Council’s records, $257,500 of the claimed fees was ineligible. The ineligible AmeriCorps fees related to members who did not fulfill their AmeriCorps duties required by the Healthy Homes Initiative grant agreement. Only 144 individuals who completed all four training sessions related to the grant (asthma awareness, secondhand smoke, home environment, and lead-based poisoning) were eligible for the $500 training fee. Applicable funding eligibility for the 144 individuals who completed the contractual requirements was only $72,000, not the $329,500 claimed by the Council–a difference of $257,500. A summary of the claimed fees is outlined below. 2 The Council’s total Healthy Homes Initiative grant was for $1.5 million. The Council claimed and submitted reimbursement requests to HUD for a total of $1,027,477. This left an unclaimed/unused grant balance of $472,523. 5 Training sessions Amount submitted for Payment received Awaiting decision: claimed reimbursement from HUD reimbursement 659 $ 329,500 $ 191,200 $ 138,300 The Council misinterpreted the grant agreement and inappropriately claimed a $500 fee each time an AmeriCorps member attended a training session. While the grant agreement allows for a $500 training fee3, it specifically states that the $500 fee is per member and not per training session attended. The grant agreement identifies the $500 fee as • Part of direct salaries, • Payment for an AmeriCorps member’s total time spent on the grant, • Per AmeriCorps member, not per training session attended, and • A one-time payment for each eligible AmeriCorps member. To be eligible for the $500 fee, an AmeriCorps member would have had to complete all four training sessions (as required in the grant agreement’s statement of work), thus fulfilling the training objectives of the grant. The grant agreement clearly requires AmeriCorp volunteers (home visitors and family resource center aides) to be fully trained in all four HUD related topics in order to become trainers and effectively execute community outreach. As previously stated, only 144 AmeriCorps members completed these contract requirements. Accordingly, eligible training fees for this contract provision totaled only $72,000 ($500 x 144), not the $329,000 claimed by the Council. The Council Did Not Comply with Federal Procurement Standards Federal procurement standards are integral to the grant process as they provide assurance that contractors are acquired in a sound, competitive, and fair manner. HUD and Office of Management and Budget Circular A-110, “Uniform Administrative Requirements for Grants with Institutions of Higher Education, Hospitals, and Other Non-Profit Organizations,” requires grant recipients to establish procurement and contract management policies and procedures to ensure that materials and services are obtained in an effective manner and in compliance with federal rules and regulations (see appendix C). 3 While the $500 fee is not expressly written in the grant agreement, the grant agreement budgeted amount was derived from the grant application which gives a clear explanation of the $500 AmeriCorps fee. 6 The Council failed to establish and maintain written procurement and contract monitoring procedures when obtaining and managing contracts for training, evaluation, and consulting services. As a result, its procurement actions and contract monitoring procedures did not meet the requirements of its grant contract with HUD. Specifically, the Council • Did not perform a cost analysis for any of its contracts or related procurement actions, • Did not complete a competitive bid process to obtain contractual services when warranted, • Did not provide explanations for the lack of competition for all of its procurement actions, • Contracted with one contractor (Minicucci Associates) based upon previous relationships and without an approved budget, • Obtained subcontract services from four contractors without obtaining required prior HUD approval, • Entered into service contracts/agreements to provide services that were already being provided under other contracts, • Made payments on service contracts based upon vague and undocumented billings submitted by its contractors, • Made duplicate payments to a contractor, and • Could not explain or document payments made to one consultant/contractor. These weaknesses in the Council’s procurement and contract monitoring procedures resulted in the payment and subsequent claim to HUD for $55,327 in ineligible consultant/contract expenses and $264,455 in claims for undocumented contract service payments. Ineligible Consultant/Contractor Payments of $55,327 Were Submitted to HUD for Reimbursement The Council submitted reimbursement requests to HUD for $55,327 in ineligible consultant/contractor expenses (see appendix D). The Council has received reimbursement from HUD for only $1,925 of this requested amount. These expenses related to four consultants/contractors whose services were obtained by the Council without obtaining prior HUD approval, as required by Office of Management and Budget Circular A-110, subpart C.25.c.8 (see appendix C), and to another contractor (Minicucci Associates) that received a duplicate payment of $3,640 (a request for reimbursement of this duplicate payment was submitted to HUD). 7 The grant budget provided for and listed five approved contractors with a budget of $508,909. However, the Council, without notifying HUD and obtaining its approval, unilaterally revised its budget by enlisting the aide of four additional consultants/contractors. The Council acquired the services of all four consultants/contractors without going through a competitive procurement process. Since required HUD approval was not obtained, the payments to these contractors are not eligible under the grant agreement. In relation to another consultant, LPC Consulting, the Council could provide no documentation or explanation relating to the $1,925 payment made to the firm; accordingly, the costs are not eligible under the grant. Over and above the failure to obtain required HUD approval and obtain the services on a competitive basis, other significant problems were noted with these contracts, including • The services of Performance by Design and Kronick Consulting were obtained to perform evaluation, consulting, and training. However, the Council had already executed contracts with three other contractors to provide similar training and evaluation services. • Only Performance by Design and Minicucci Associates had an executed contract with the Council. However, these contracts were vague and had no specific work statements to govern them. There were no contracts or other agreements with the other consultants/contractors, and they were paid simply based upon billings submitted. • All five contractors received ineligible payments resulting from non- HUD-related activities and/or inadequate supporting documentation. For example, one contractor was routinely paid for conducting conflict resolution training for work completed on the Council’s Birth and Beyond program, and for travel that was not related to the grant. • Documentation supporting claimed costs was often vague and did not clearly indicate how the costs were related to the grant. Ineligible costs resulting from the Council’s ineffective procurement actions are summarized below. Ineligible amount Contractor/ submitted for Amount Awaiting decision on consultant reimbursement reimbursed reimbursement LPC Consulting $ 1,925 $ 1,925 $ 0 Performance by Design 37,413 0 37,413 Kronick Consulting 9,450 0 9,450 Office Team 2,899 0 2,899 Minicucci Associates 3,640 0 3,640 $ 55,327 $ 1,925 $ 53,402 8 Unsupported Claims of $264,455 Were Submitted for Payments Made to Consultants/Contractors Contrary to Office of Management and Budget Circulars A-87, A-110, and A-122 (see appendix C), the Council expended and claimed reimbursement for $264,455 in payments made to consultants/contractors4 that were not adequately supported (see appendix D). Based on grantee records, these contractual expenses were as follows: Received Awaiting Consultant/contractor reimbursement reimbursement service provided December 10, 2000 - April 1, 2003 - March 31, 2003 March 14, 2004 American Lung Association (provided training services for asthma $ 81,294 $ 27,881 awareness, secondhand smoke, and home environment) Sacramento County Department of Health and Human Services 58,721 53,086 (provided training services for lead- based poisoning) Minicucci Associates (provided evaluation services) 0 43,473 $ 140,015 $ 124,440 The American Lung Association and Sacramento Health and Human Services submitted invoices that only listed the budget, current period expenses for each budgetary line item, and cumulative expenses for each line item. The invoices did not provide specific data or documentation to support the eligibility of the expenses claimed for each line item total. Accordingly, the eligibility of the costs claimed under the contracts could not be determined. Office of Management and Budget circulars require that contractors provide the same level of support as the grantee (see appendix C). This would include providing sufficient documentation to allow for a determination of the eligibility of claimed costs under the applicable contracts. Supporting documentation is especially critical for a grantee or contractor who deals with numerous organizations simultaneously. The supporting documentation for the expenses is not only important for reimbursement analysis, but is critical in ensuring that the contract was adhered to and expenses charged were for services agreed to in the contract. 4 These three subcontractors were approved and identified in the grant agreement. Two other subcontractors were identified and approved in the grant agreement, but their services were never used. 9 The contract between the Council and Minicucci Associates did not include a budget and failed to detail or list services and related costs that were to be provided under the contract. Minicucci Associates submitted billing invoices that listed charges for salaries, a 55 percent overhead rate, a general and administration rate of 5 percent, and at times claimed subcontractor costs. Since the contract did not contain specific details related to services to be provided or an approved budget, the invoices should have been accompanied by support detailing the work performed and how the salaries and overhead costs were justified and related to the grant agreement. The Council Failed to Establish an Adequate Financial Management System A good financial management system is integral to a grantee’s ability to adequately administer its grant program. HUD and Office of Management and Budget Circular A-110, subpart C, “Standards of Financial Management Systems,” requires grant recipients’ financial management systems to provide records that adequately identify the source and application of funds for federally sponsored activities (see appendix C). These records should contain information pertaining to federal awards, authorizations, obligations, unobligated balances, and outlays. However, the Council failed to implement a system that met the minimum requirements of Office of Management and Budget Circular A-110. Weaknesses in the Council’s financial management system, as discussed below, contributed significantly to its inability to properly account for its grant-related transactions. While the Council purchased accounting software for its operations, it did not • Adequately implement the software to ensure that costs were accounted for consistently, • Track grant expenses, • Create accurate reports, • Reconcile actual expenses to expenses claimed, and • Correctly reconcile expenses billed to HUD for reimbursement to the accounting databases. We also noted that during our audit period, the Council was operating using three different accounting databases. The databases all contained various levels of information and were not consistent with each other in the information pertaining 10 to the Healthy Homes Initiative. Because of these weaknesses and inconsistencies in the Council’s financial management systems, we had to perform our financial analysis by reviewing all of the expenses for which we could obtain support. Problems with the Council’s financial management systems were compounded by its lack of personnel with an adequate accounting and financial background to properly implement and maintain its overall financial records. The former deputy director of finance and operations and former accounting manager lacked the appropriate background, education, and training to implement and maintain a financial management system for a nonprofit organization receiving money from multiple grant sources. In addition, the Council did not have written accounting procedures to help in ensuring that costs charged to the HUD grant were allowable, allocable, reasonable, and directly related to the HUD grant. The Council’s lack of accounting procedures also contributed to a weak internal control system. Specifically, the Council • Did not have a consistent process for purchases, • Allowed for reimbursements without prior approval, • Did not have consistent cost allocations, • Appeared to randomly charge expenses to the HUD grant, • Allowed accounting staff to make changes to the general ledgers without management approval, • Provided minimal oversight to the accounting and finance department, and • Maintained inadequate accounting records that did not support claimed grant costs. As discussed below, the Council’s lack of an adequate financial management system and its poor internal control policies resulted in the charging of $270,478 in undocumented/unsupported costs and $89,119 in ineligible costs to the grant. The Council Claimed $270,478 in Unsupported Payroll Expenses None of the Council’s claimed payroll expenses (salaries and fringe benefits) totaling $270,478 were supported, as applicable time records failed to document time worked on the Healthy Homes Initiative grant. Office of Management and Budget Circular A-122 (see appendix C) requires the preparation of time records, prepared after the completion of work, which document hours worked each day on a grant, separate from other organization activities. Based on Council records, payroll expenses of the 16 employees who charged time to the grant are as follows: 11 Received Awaiting reimbursement reimbursement Position December 10, 2000 - April 1, 2003 - March 31, 2003 December 31, 2003 Community development / Training manager $ 6,998 $ 4,957 Trainer 1,418 Trainer 4,250 Trainer 7,481 17,626 Trainer 3,888 2,187 Trainer 1,038 8 Trainer 636 31,554 Training coordinator 2,224 Training coordinator 7,143 Training coordinator 10,487 Program manager 17,554 Supervisor-Arden 5,025 Accounting manager 35,004 Accounting clerk 615 Trainer 14,065 4,250 Temps 3,553 16,980 Other 729 Total salaries $ 50,370 $ 149,300 Fringe benefits 16,800 54,008 Total salaries and benefits $ 67,170 $ 203,308 Grantee application of HUD advance (appendix D) 149,3005 (149,300) Total $ 216,470 $ 54,008 It should also be noted that the Healthy Homes Initiative grant agreement and approved budget allocated grant money for only three employees–program manager, training coordinator, and administrative analyst. The budget did not allocate or provide funding for trainers, accountants, or temporary staff. 5 $149,300 of a $150,000 grant advance (received in September 2001) was applied to direct labor for the period April 1- December 31, 2003. The $149,300 is added to the total amount reimbursed for unsupported direct labor. 12 The Council receives significant grant funding from sources other than HUD. In years, 2001, 2002, and 2003, the Council’s audited financials show it received less than 6.5% percent per year of its funding from HUD. In the Council’s financial statements, the Healthy Homes Initiative grant is considered a minor funding source. Between 2000 and 2004 (except for 2001), the Council received at least seven grants from different organizations. Given the Council’s diverse funding sources and its broad activity base, salaries and fringe benefits should be supported by detailed time records. The Council Claimed $89,119 in Other Ineligible and Unsupported Expenses The Council charged the grant $38,013 for other ineligible expenses and $51,106 for other unsupported expenses. The ineligible expenses represent non-HUD related costs for companywide postage, travel, tax services, copying services, office supplies, computer equipment, and equipment rental and maintenance. On more than one occasion, the Council charged ineligible expenses for meals, plants, flowers, and office furniture to the HUD grant. The ineligible direct labor and fringe benefit costs represent expenses incurred after the March 14, 2004, grant termination date. Additionally, the Council failed to submit an indirect cost plan for HUD approval as required by Office of Management and Budget Circular A-122 (see appendix C). Without an indirect cost plan, the Council carries the burden of supporting all costs as directly related to the HUD grant. However, it charged indirect costs, such as parcel shipments, postage, office supplies, equipment rentals, computer equipment, and communications charges, to the contract without documentation supporting their eligibility under the grant program. The Council also failed to maintain support for other direct costs charged to the HUD grant and rarely maintained documentation for travel, mileage, meals, and per diem costs charged to the grant that clearly linked the purpose of travel to the Healthy Homes Initiative grant. The ineligible and questioned costs are summarized below and listed in more detail in appendix D. 13 Received Awaiting reimbursement reimbursement Cost category Total December 10, 2000 - April 1, 2003 - March 31, 2003 March 14, 2004 Other ineligible expenses Direct labor $ 0 $ 6,448 $ 6,448 Fringe benefits 0 149 149 Supplies 13,203 8,895 22,098 Travel 5,811 451 6,262 Other 125 2,931 3,056 Total $ 19,139 $ 18,874 $ 38,013 Other unsupported expenses Supplies $ 13,434 $ 14,566 $ 28,000 Travel 1,740 5,725 7,465 Other 4,731 10,910 15,641 Total $ 19,905 $ 31,201 $ 51,106 Total $ 89,119 Conclusion The Council lacked the knowledge needed to administer its Healthy Homes Initiative grant in accordance with pertinent grant requirements and regulations. Additionally, it failed to establish and implement procurement and financial management systems and controls necessary to properly account for and manage its grant funds. These weaknesses resulted in the charging of more than $991,000 in ineligible and unsupported costs to its grant program. Accordingly, HUD has no assurance that Healthy Homes Initiative funds were used only for authorized and allowable expenses. Recommendations We recommend that the director of the Office of Healthy Homes and Lead Hazard Control 1A. Require the Council to repay HUD from nonfederal sources the $119,200 it received for ineligible AmeriCorps training fees and deny payment of the $138,300 in additional ineligible fees the Council has requested. 14 1B. Require the Council to repay HUD from nonfederal funds the $1,925 in ineligible consultant/contract fees for which it has received reimbursement and deny reimbursement of the additional ineligible consultant/contract fees of $53,402 identified in the finding. 1C. Require the Council to provide support for the $140,015 in undocumented consultant/contractor fees for which it has been reimbursed by HUD and the additional $124,440 in similar undocumented fees for which payment has been requested from HUD but not received. If documentation cannot be provided, the Council should be (1) required to reimburse those fees for which reimbursement has been received and (2) denied payment for pending reimbursement requests that cannot be documented. 1D. Require the Council to provide support for the $216,470 in undocumented salaries and fringe benefits charged to the grant and reimbursed by HUD and the additional $54,008 in unsupported salaries and fringe benefits for which reimbursement has been requested but not received. If documentation cannot be provided, the Council should be (1) required to reimburse HUD from nonfederal sources those salary expenses for which reimbursement has been received and (2) denied payment for any pending salary reimbursement requests that cannot be supported. 1E. Require the Council to reimburse HUD from nonfederal sources the $19,139 in other ineligible costs for which it has received reimbursement and deny payment of the $18,874 in pending ineligible claims. Additionally, the Council should be required to provide support for $19,905 in other undocumented expenses for which it has received reimbursement and $31,201 in other undocumented expenses for which reimbursement has been requested from HUD but not received. If these expenses cannot be supported, they should be refunded to HUD or denied reimbursement as applicable. 1F. Deobligate the $472,523 in unused funds remaining under the grant along with any other disallowed costs resulting from recommendations 1A through 1E. 1G. Not award the Council additional funding until it can demonstrate that it has established and implemented written procurement policies and procedures that follow federal procurement standards and implemented a financial management and record-keeping system that meets federal requirements for grant recipients. 15 Finding 2: The Council Did Not Meet Its Contract Performance Requirements The Council did not execute its Healthy Homes Initiative grant effectively and efficiently, resulting in a failure to meet the performance goals required by its grant agreement. Although claiming to meet its grant training and outreach goals, the Council failed to implement an effective community outreach education program, the real intent of the grant program. We attribute the deficiencies to the Council’s lax attitude toward program implementation, inadequate organizational capacity, and lack of policies and procedures relating to the Healthy Homes Initiative. These conditions hindered the Council’s ability to create and maintain a successful outreach and education program accessible to families throughout the 17 counties targeted by the grant agreement. The Council Failed to Accomplish Its Performance Requirements Sufficient organizational capacity, coupled with a clear and focused plan, is integral to a grantee’s ability to adequately execute its grant program. The statement of work, as part of the grant agreement, identifies a set of goals that can be used as a measurement of successful grant implementation and completion. The Council’s grant agreement laid out grant performance goals to be accomplished throughout its three-year grant period, reaching at-risk families across 17 targeted counties. However, these goals were not met. Performance Goals While the Council claimed it met all of its performance goals in its final report submitted to HUD, supporting documentation, including training session sign-in sheets and home visit record charts, did not support the Council’s claimed performance accomplishments. Based on the grantee’s records, the Council failed to achieve six6 of its performance goals (see highlighted cells in table below), as shown below. 6 The sixth goal, increase in blood testing for lead, was eliminated as a performance goal in December of 2003. The Council cited barriers in tracking childhood lead testing and the inability to develop a consistent tracking tool. 16 Performance category Goal Accomplished Goal Accomplished Asthma 24 training sessions 39 370 persons trained 442 Secondhand smoke 24 training sessions 30 370 persons trained 333 Home environment 24 training sessions 30 370 persons trained 340 Lead poisoning 36 training sessions 46 470 persons trained 560 Parents/adult caregivers 200 persons trained 307 Childcare providers 100 persons trained 42 2,100 home visits Home visits 700 families 548 700 per year 1399 Year 1: 13 centers Accomplished Distribution of materials Year 2: 17 centers Teleconferencing Year 1: 2 counties Year 1: 3 counties capacities Year 2: 4 counties Year 2: 3 counties Year 2: 5% Increase of blood testing Year 3: 10% Goal eliminated While the table indicates that the Council met its “training session goals,” these goals are not very relevant to achievement of the overall grant goal of community outreach and education. Attendees at these training sessions could consist of more than 30 people or as few as three people. Accordingly, the goals related to the number of persons trained is of far greater importance as once trained, they are the primary means for conducting the principal grant objective, education and outreach programs in targeted counties. Healthy Homes Initiative Grant Execution The goal accomplishments shown above were not reflective of the effectiveness of the Council’s execution of its grant program. We identified deficiencies and irregularities in the methods by which the Council carried out grant activities that illustrate an ineffective and inefficient execution of the grant. For example, the Council allowed persons to attend the same training more than once, inflating the number of reported individuals receiving training but not adding to the usefulness of the program. The Council’s failure to effectively carry out its grant program is further demonstrated when its grant activities are analyzed on an annual basis over the three-year grant period. Of the 2,024 persons trained, • 7 percent were trained in year 1, • 14 percent were trained in year 2, and • 79 percent were trained in year 3. 17 As shown in appendix E, the grant work statement envisioned/required implementation of all goals throughout the three-year grant period, not just during the last year of the grant. In addition, using the home visitation recording charts, we identified serious delays in home visit dates. Of the 1,399 home visits we were able to confirm, 91 percent were conducted in the final year of the grant. As shown below, the number of home visits (the most important goal of the grant) during the first two years of the program was almost nonexistent. Year Home visits Percentage Year 1 (April 01-March 02) 1 0.00 Year 2 (April 02 - March 03) 6 0.00 Year 3 (April 03 - March 04) 1,272 0.91 After March 15, 2004 64 0.05 Undetermined7 56 0.04 Total 1,399 100 According to the Council’s home visitation model, home visits were to be conducted weekly (at the most intense visitation scenario), with each family receiving at least three home visits. However, the home visit recording charts showed numerous instances in which consecutive home visits were conducted on the same day or less than weekly. The results of such home visits are less valuable, as they would not allow enough time for behavioral changes in the home environment to be adequately tracked to see if the home education visits were effective. Lastly, the grant agreement required the Council to provide Healthy Homes Initiative education, training, and outreach efforts across 17 counties in California. However, of the 548 families who received home visits, we identified 386 who lived in Sacramento County. If 70 percent of the at-risk families provided services under the grant lived in Sacramento County, it would appear that the Council did not make a reasonable effort to provide outreach and education across the other 16 counties. 7 The undetermined home visits were supported by record charts that did not contain a date or year. Without a date or year, we could not classify the home visits as having been conducted during the grant period. 18 Conclusion We attribute the Council’s failure to meet grant requirements to insufficient planning and a lack of procedures for effective program implementation. The Council neglected the Healthy Homes Initiative until the third year of the grant, while placing an emphasis on its larger, more significant programs. With such a long delay in grant execution, the Council sacrificed efficiency and effectiveness for production. It did not have a set of policies and procedures in place to assure that the grant was on schedule and being conducted in a manner that would reach at-risk families in a consistent, timely, and effective way. As a result, the Council did not fully meet the grant’s goals of providing education, prevention, and training to targeted families. Recommendations We recommend that the director of the Office of Healthy Homes and Lead Hazard Control 2A. Not award the Council additional funding until it can demonstrate that it has the organizational capacity to simultaneously execute multiple grant programs. 19 SCOPE AND METHODOLOGY We performed the audit between September 2005 and December 2006. The audit generally covered the period from December 10, 2000, through March 14, 2004. The grant was awarded in March 2001 and included a cost allowability period beginning on December 10, 2000. We expanded the scope as necessary. We reviewed applicable guidance and discussed operations with management and staff personnel at the Council and key officials from HUD’s Office of Healthy Homes and Lead Hazard Control. Our primary methodologies included • Reviewing applicable HUD regulations at 24 CFR [Code of Federal Regulations] Part 84; Office of Management and Budget Circulars A-87, “Cost Principles for State, Local, and Indian Tribal Governments”; A-110, “Uniform Administrative Requirements for Grants and Agreements with Institutions of Higher Education, Hospitals, and Other Nonprofit Organizations”; and A-122, Cost Principles for Nonprofit Organizations” as well as the Super Notice of Funding Availability, dated February 24, 2000 (see appendix C). • Interviewing appropriate HUD personnel and relevant grant files to obtain an understanding of Healthy Homes Initiative requirements and identify HUD’s concerns with the grantee’s operations. • Reviewing the grantee’s policies, procedures, and practices. • Interviewing key Council personnel. • Reviewing past independent public accountants’ reports and prior HUD monitoring results. • Reviewing available checks, invoices, and other supporting documents for the $1,027,477 in claimed grant-related expenditures ($606,125 reimbursed by HUD and $421,352 rejected by HUD). • Reviewing employee timekeeping records. • Reviewing sign-in sheets, training logs, course outlines, and course presentation materials. • Reviewing healthy homes home visitation recording charts and AmeriCorps rosters. • Reviewing contractor/consultant agreements and procurement files. We conducted our audit in accordance with generally accepted government auditing standards and included tests of management controls that we considered necessary under the circumstances. 20 INTERNAL CONTROLS Internal control is an integral component of an organization’s management that provides reasonable assurance that the following objectives are being achieved: • Effectiveness and efficiency of operations, • Reliability of financial reporting, • Compliance with applicable laws and regulations, and • Safeguarding resources. Internal controls relate to management’s plans, methods, and procedures used to meet its mission, goals, and objectives. Internal controls include the processes and procedures for planning, organizing, directing, and controlling program operations. They include the systems for measuring, reporting, and monitoring program performance. Relevant Internal Controls We determined the following internal controls were relevant to our audit objectives: • Policies and procedures to ensure grant expenditures were eligible and adequately supported; • Policies and procedures to ensure contracts were awarded according to federal procurement standards; • Policies and procedures to ensure adequate financial management and record-keeping systems were in place; and • Policies and procedures to ensure grant performance goals were achieved in an effective and efficient manner. We assessed the relevant controls identified above. A significant weakness exists if management controls do not provide reasonable assurance that the process for planning, organizing, directing, and controlling program operations will meet the organization’s objectives. Significant Weaknesses Based on our review, we believe the following items are significant weaknesses: The Council did not have adequate internal controls to reasonably ensure that 21 • Grant expenditures were eligibile and adequately supported (finding 1). • Contracts were procured and awarded in accordance with federal procurement standards (finding 1). • Adequate financial management and record-keeping systems were in place (finding 1). • Grant performance goals were achieved in an effective and efficient manner (finding 2). 22 APPENDIXES Appendix A SCHEDULE OF QUESTIONED COSTS AND FUNDS TO BE PUT TO BETTER USE Recommendation number Ineligible 1/ Unsupported Funds to be put 2/ to better use 3/ 1A $257,500 1B $55,327 1C $264,455 1D $270,478 1E $38,013 $51,106 1F $472,523 Total $350,840 $586,039 $472,523 1/ Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity that the auditor believes are not allowable by law; contract; or federal, state, or local policies or regulations. 2/ Unsupported costs are those costs charged to a HUD-financed or HUD-insured program or activity when we cannot determine eligibility at the time of audit. Unsupported costs require a decision by HUD program officials. This decision, in addition to obtaining supporting documentation, might involve a legal interpretation or clarification of departmental policies and procedures. 3/ “Funds to be put to better use” are quantifiable savings that are anticipated to occur if an Office of Inspector General (OIG) recommendation is implemented, resulting in reduced expenditures at a later time for the activities in question. This includes costs not incurred, deobligation of funds, withdrawal of interest, reductions in outlays, avoidance of unnecessary expenditures, loans and guarantees not made, and other savings. The $472,523 in funds put to better use represents grant funds that were not expended. The Council claimed and submitted reimbursement requests to HUD for a total of $1,027,477 out of a total of $1.5 million. This left an unclaimed/unused grant balance of $472,523. We are recommending the $472,523 be deobligated for use on other HUD Office of Healthy Homes and Lead Hazard Control programs. 23 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Ref to OIG Evaluation Auditee Comments 24 25 Comment 1 26 Comment 2 Comment 3 Comment 4 Comment 5 Names have been redacted for privacy 27 Comment 6 28 Comment 7 Comment 8 29 Comment 9 30 Comment 10 31 Comment 11 Comment 12 Comment 13 32 Comment 14 Comment 15 Comment 16 33 Comment 17 Comment 18 Comment 19 34 Comment 20 Comment 21 Comment 22 35 Comment 23 36 Comment 24 Comment 25 Comment 26 Comment 27 37 Comment 28 Comment 29 Comment 30 Comment 31 Comment 32 38 39 Comment 33 40 Comment 34 41 Comment 35 42 Comment 36 Comment 37 Comment 38 Comment 39 Comment 40 43 Comment 41 Comment 42 Comment 43 Comment 44 Comment 45 44 Comment 46 45 Comment 47 Comment 48 Comment 49 46 Comment 50 47 Comment 51 Comment 52 48 Comment 53 49 Comment 54 Comment 55 50 51 Comment 56 52 Comment 57 Comment 58 53 Comment 59 Comment 60 54 Comment 61 Comment 62 Comment 63 55 Comment 64 56 Comment 65 57 58 59 60 61 62 63 64 65 66 67 68 69 OIG Evaluation of Auditee Comments Comment 1 The HUD Office of Inspector General is a respected resource for HUD, Congress and the American public in ensuring the integrity, efficiency, and effectiveness of HUD programs and operations. While we recognize the vital role grant funding plays in the daily operations of non-profits, we have a public duty to independently review HUD programs, including grant recipients, and report our findings without bias. Our reviews are independent, objective, and are based solely on facts, documentation, and applicable rules and regulations. In keeping with the Office of Inspector General’s mission, our findings are made based solely on the results of our detailed and thorough audit work. Comment 2 The Council claims it accomplished its goals in implementing an effective community outreach education program. However, our audit work identified numerous instances of program shortcomings, inefficiencies, and ineffectiveness (see finding 2). We recognize and appreciate the Council’s efforts in trying to achieve its performance goals and promote HUD’s mission. However, we respectfully disagree that “administrative technicalities” are trumped by the Council’s performance. The “administrative technicalities” referred to are controls put in place to ensure HUD grant funds are expended according to federal rules and regulations and on appropriate HUD related expenses. Comment 3 The Council claims that the qualitative goals of the grant are not reflected in the audit’s conclusion. In fact, finding 2 is dedicated entirely to the Council’s grant performance and its qualitative milestones. The table on page 17 of the report illustrates the qualitative results of every performance goal, including those achieved and not achieved. The report clearly states that the Council “met its training session goals”, however, it also indicates the goals met are not indicative of a successful grant program. The OIG recognizes the importance of completing training sessions. However, we identified the goals regarding home visits and families reached of greater significance as they relate to the direct impact of the HUD grant. Comment 4 The grant was not cut short or truncated by a HUD-imposed action. In response to the November 2003 HUD Remote Monitoring Report, the Council requested the grant performance period be reduced from March 14, 2004, to December 19, 2003. In the same request, the Council acknowledged a less than acceptable level of performance. HUD accepted the reduced performance period, stating that the Council should no longer train individuals and should instead focus on reaching at risk families through home visits during the remaining months of the contract. Per the Council’s request, the grant was only reduced by three months. The Council agreed to accomplish 100 percent of the goals and objectives listed in Appendix E of the report. Pro-rating the goals to illustrate a more favorable accomplishment record would not be appropriate given that the grant period was truncated due to Council performance shortcomings. 70 Comment 5 The exit conference is typically held five to seven days after the auditee receives the discussion draft audit report. We accommodated the Council’s timing conflicts by scheduling the exit conference on June 8, 2006, 21 days after the Council received the report (May 18, 2006). Typically OIG requires, written comments be received 15 days from issuance of the final discussion draft report. The original June 15, 2006, written comments deadline allowed 29 days for the Council to draft formal written comments. We are not responsible for, nor can we control at which point the auditee decides to enlist the aide of outside legal counsel. Comment 6 We disagree with the Council’s claims that adequate time was not given to respond to the report. The OIG is concerned with reporting our audit results in a fair and balanced way, and meeting our obligation under Government Auditing Standards to consider the views of responsible officials. We have met that responsibility. Regarding the Council’s “due process,” our reports and recommendations are advisory. It is the responsibility of the addressee of this report to determine what action is to be taken on our recommendations and implement such actions in a manner that preserves the Council’s constitutional rights to due process. With the revised June 23, 2006, written comments deadline, the Council was given 37 days to respond. Additionally, OIG auditors kept the Council’s management apprised of findings and material information throughout the audit. Comment 7 Claim reimbursement requests are routinely paid by HUD, unless red flags raise concerns regarding the allowability of claimed grant costs. When red flags, such as performance shortcomings, were raised, HUD immediately denied reimbursement requests. Given HUD and the OIG’s responsibility to review the financial and program performance of grant recipients, as deemed necessary, the Council was wrong to assume allowability was determined through grant payments. We strongly disagree with the Council’s claims that OIG considers administrative efficiency to be of paramount importance in the audit report process. While we do attempt to conduct our audits in the most efficient manner, we do not allow administrative efficiency to affect audit reporting. We believe the Council was given ample time throughout the audit to prepare for responding to the audit findings. Audit reports must be timely in order to be of maximum relevance. The OIG cannot modify its audit procedures to accommodate grantee representatives’ vacations and time off. Comment 8 The OIG appreciates the Council’s efforts to respond to the report in a timely fashion. During the exit conference and throughout the audit, the Council was given a description of the audit resolution process and is aware that the Council 71 will be contacted by HUD regarding resolution of the audit findings. The Council’s comments were reviewed and taken into consideration when issuing the final audit report. Comment 9 Through legal deduction, the Council claims the grant agreement executed with HUD is appropriately interpreted using California contract law over federal law or the rules and regulations agreed to in the grant agreement. The first page of the grant agreement clearly lists rules and regulations that govern the grant agreement: Office of Management and Budget Circulars A-122, A-110, and A- 133. When interpreting the grant agreement, as it relates to administration and cost eligibility, the preceding circulars should be the primary source for consultation. Comment 10 We agree that the Government Technical Representative plays an important role in HUD grant administration. However, the Government Technical Representative is supposed to collect and review documentation received from the grantee. It would be impractical, considering government time and budget constraints, to expect a Government Technical Representative to conduct a continual audit of each grantee involved in a particular HUD program. The HUD representative would conduct more extensive reviews and possible site visits only when concerns are raised regarding the grantee’s performance. Comment 11 The Council refers to handwritten notes on the grant agreement scanned and emailed to the Council by the OIG as evidence that HUD failed to take advantage of an opportunity to correct a problem. The handwritten notes on the grant agreement are a result of HUD reviews after the fact. The notes were part of a thorough review of the grant made when grant payments were rejected by HUD. Comment 12 The Council is correct in its interpretation of the grant agreement. However, the Inspector General Act of 1978 gives the Office of Inspector General the authority to review the performance and financial aspects of HUD program participants. While the work is deemed as accepted, the OIG has the authority to review accepted products of works to make audit findings and recommendations. Additionally, accepted products of work do not imply that the work was accomplished efficiently and/or effectively. Comment 13 Our audit focused on the grant operations of the Child Abuse Prevention Council. We have no comments regarding any reviews or statements pertaining to the performance of HUD employees as these are beyond our audit scope. As stated in comment 10, the HUD representative is tasked to review documents received from the auditee. When concerns are raised, more thorough reviews are conducted. Through a remote monitoring report, emails, and a high risk letter, the Council was notified of shortcomings and other grant management deficiencies. Additionally, the Council was also notified of financial shortcomings resulting in the rejection of payment vouchers. 72 Comment 14 The Council misrepresents the words of an OIG Auditor. The statement “the Agreement is a little unclear” was used to describe to the Council’s legal representative how the statement of work needs to be viewed as a whole document with the grant agreement, not by itself. When reviewing the grant agreement, including the statement of work, it becomes clear that home visits were to be conducted three times for the same family, reaching 700 families, for a total of 2100 home visits. The Council clearly did not think the agreement was unclear as it referred to the 700 families and 2100 home visits in paragraph three, on page 13 of its written comments. Comment 15 We disagree that the Council performed all things necessary and therefore is entitled to payment of the requested vouchers. While a significant portion of our audit findings refers to unsupported costs, the Council is incorrect in stating the OIG does not contend that expenses were not necessary. In fact, we do contend that some expenses were unnecessary and therefore, not allowable. Our audit identified numerous travel, supplies, and other expenses that were unnecessary and deemed ineligible. Further, Finding 1 identifies a large portion of AmeriCorps fees that were deemed ineligible, not because of documentation deficiencies, but because a majority of the AmeriCorps fees the Council charged HUD were not eligible grant costs. Comment 16 We agree the Council should be reimbursed for “eligible” costs incurred in performing the grant activities. However, the costs must be incurred and documented in accordance with federal rules and regulations. Grant costs must be clearly identified and linked as HUD grant related. Comment 17 The Council is incorrect in stating that costs incurred means “allowable costs”. A cost incurred and charged against the HUD grant does not mean that cost is allowable. The HUD representative has the authority to review and deem costs as eligible or ineligible. A cost is allowable only when it is applied and documented in compliance with Office of Management and Budget Circulars A-122 and A- 110 and the grant agreement. We find no ambiguity in the terminology used in the grant agreement. The OIG is tasked with finding any instances of waste, fraud, and abuse. Accordingly, we are responsible for applying applicable federal rules and regulations to determine the allowability of costs. Comment 18 Simply approving payment requests does not imply the costs associated with a particular payment are allowable and therefore, not eligible for further review and scrutiny. Beginning in June of 2003, HUD rejected payment vouchers because questions arose regarding the allowability of claimed grant costs. The Council was aware of HUD reviews prior to the OIG audit and was made aware of deficiencies throughout the audit review. Office of Management and Budget Circular A-110 allows HUD, the Inspector General, Comptroller General of the United States, or any of their duly authorized representatives, the right of timely 73 and unrestricted access to any books, documents, papers, or other records of recipients that are pertinent to the awards, in order to make audits, examinations, excerpts, transcripts and copies of such documents. Comment 19 The first page of the grant agreement clearly lists applicable HUD rules and regulations. Based on our audit fieldwork, it was apparent that the Council failed to become familiar with the applicable rules and regulations. Therefore, the Council executed its grant without knowledge of financial and documentation requirements. Comment 20 The Council’s comments have been incorporated into the audit report and aspects of the report have been modified. However, the OIG clearly stated to the Council that, to be considered in the final audit report, documentation was to be received with the written comments. During the exit conference, the OIG listed what level of documentation was appropriate to address the audit findings. Comment 21 The Council is correct in the terminology used. However, the Council is incorrect in interpreting the grant agreement in very loose terms. The Council goes so far as to use the dictionary for definitions. The goals and objectives are an agreed to set of milestones that HUD is expecting to be accomplished with the grant money provided. The goals and objectives are not performance levels that HUD is hoping the Council achieves, rather they are expected. The terms “statement of work” is the same as goals and objectives. In both cases, HUD expects those goals/work milestones to be accomplished. Comment 22 As stated in comment 21, the goals and objectives are HUD’s expectations as to what is to be accomplished. Comparing the actual accomplishments with the agreed to milestones is a standard way of measuring the Council’s grant performance. The Council did in fact report on its milestones and qualitative accomplishments. We disagree that our audit utilized an “all or nothing” approach. Rather, our comparison of accomplishments versus goals was only one part of our review. As stated during the exit conference, we scrutinized the documentation to see behind the numbers and identify trends or irregularities. As stated in finding 2, we found numerous deficiencies that illustrate ineffective and inefficient grant operations. While the Council claims that the Council largely met its goals and objectives, we found it did not meet its most important goal (home visits) and did not execute the grant effectively or efficiently (finding 2). Funds are being denied and/or withheld because the Council could not provide adequate supporting documentation or costs were determined to be ineligible. Our findings regarding the allowability of costs are separate and distinct from our finding on grant performance. 74 Comment 23 Once again the Council misrepresented the words of an OIG Auditor. The OIG Auditor was merely stating that he understood what Mr. Boutin was trying to say and in no way was giving his concurrence. The Council is looking at finding 2 in individual separate parts instead of as a whole. Finding 2 does identify those accomplishments that were met. We did not laud the Council’s accomplishments because our audit work found the work was rushed, at times duplicated, and not effectively managed. While the claimed accomplishments might have been somewhat appealing on paper, they are less than desirable given what was actually accomplished. Comment 24 HUD was not a primary funding source and therefore, must pay close attention to the way its grant monies were spent. We must make sure that the same level of attention and detail that is provided to the Council’s larger grantors is also provided to its smaller less significant grantors. Comment 25 As stated in finding 2, while the Council met its “training session goals,” these goals are not very relevant to achievement of the overall grant goal of community outreach and education. Attendees at these training sessions could consist of more than 30 people or as few as three people. Accordingly, the goals related to the number of persons fully trained is of far greater importance as once trained, they are the primary means for conducting the principal grant objective, education and outreach programs in targeted counties. Comment 26 Given the Council’s varying levels of performance and its poor performance in the first two years of the grant, there is no way of knowing which goals would have been met. As stated in Comment 4, the Council is the party responsible for truncating the performance period. Comment 27 The number of people attending training sessions was counted based on sign in sheets provided by the Council. The Council did not have a uniform sign-in sheet and used a number of different formats throughout the grant period. Certain sign- in sheets were for three combined training sessions/topics, others were for one single session/topic. We did give credit for those training sessions where the sign in sheets explicitly showed that the training sessions covered all four HUD related training sessions. Comment 28 We counted every home visit recording chart provided to us by the Council. To get a clear picture of the grant performance during the grant period, we excluded those home visits to families that occurred outside the grant period of March 15, 2001 through March 14, 2004. Comment 29 The Council is incorrect in stating we did not count 56 home visits. The 1399 total eligible home visits include the 56 home visits. The table on page 18 of the report has been modified to provide a clearer understanding. 75 Comment 30 We disagree with the Council’s characterization of persons attending the same training more than once as isolated incidents. We identified 163 instances of persons attending the same training session/topic more than once. Comment 31 Per the grant agreement under “A. Intervention Strategy”, home visits will be at their most intensive level of service with one-hour weekly visits. Any visits made less than a week apart are not ideal as it makes tracking long term behavioral changes less significant. Had the grant been executed throughout the three years and not rushed in the third year, visits made less than a week apart would not have been needed. Comment 32 Given the description provided by the Council at the exit conference, in their written comments, and during the audit, we have determined that the distribution of materials is no longer a failed grant goal. While we believe the Council could have done a better job documenting when and where educational materials were distributed, we agree that it is too cumbersome to require or mandate every instance to be recorded. We find the quarterly reports and examples of materials used to be sufficient and have revised our report accordingly. Comment 33 We did not include the teleconferencing goal as a failed goal in the discussion draft report. The table in the audit report shows this as an accomplished goal. Comment 34 The flurry of activity was caused by the Council’s lack of grant execution in the first two years of the grant, thus the need for a high risk letter. Without the high risk letter, who is to know what the ultimate accomplishments would have been. Comment 35 We find that the comments provided by the Council provided little to change our second finding of the draft audit report. While we did change the distribution of materials from a failed goal to an accomplished goal, all other aspects of the finding remain the same. The Council performed well on paper, but when we looked into the grant execution and performance evidence, we found the Council did not adequately achieve its grant objectives. Comment 36 While the OIG did not execute the grant agreement with the Council, we consulted HUD Office of Healthy Homes and Lead Hazard Control staff when reviewing the $500 AmeriCorps fee charges. Comment 37 The Council is incorrect in saying neither HUD nor the OIG were told by the Council how it interpreted the $500. In fact, the OIG received the general ledgers and an AmeriCorps fee calculation worksheet that showed explicitly how the Council interpreted and calculated the $500 fee. In addition, meetings with Council management provided further concrete details as to how the $500 was calculated and charged to the grant. While the Council may have understood the $500 to be a fee for training, we disagree with its method of calculating the amount of fees earned. 76 Comment 38 Again, the Council incorrectly assumes the OIG had no actual knowledge of the Council’s interpretation. The Council incorrectly assumes that since HUD approved payment of vouchers, the associated costs are all allowable. Rather, all costs are subject to review by HUD and the OIG. One of our audits objectives was to determine if costs were charged according to the grant agreement and other federal rules and regulations. As such, it is within the OIG’s authority to question costs even after payment has been approved. Comment 39 The Council’s legal representation has provided a skewed view of the OIG’s words and interpretation. While the grant agreement does not specifically contain verbiage regarding the $500 AmeriCorps fee, the agreement does contain an approved budget that includes a total amount of $495,000 (revised down from an original $600,000). The total amount was derived from the verbiage in the grant application. We found it entirely appropriate to look to the grant application to seek guidance as to how the $500 was described and calculated. Aside from the evidence previously stated, we found the application to be more than adequate to give insight as to the original intention. The current HUD grants officer and HUD representative concurred that the $500 would not be appropriate if charged per individual, per each training session attended. The grant application set aside $675,000 for AmeriCorps fees, listed under direct labor. The reductions from the application to the agreement were due to HUD’s approval of a grant amount less than what was requested. The grant application clearly states that the $500 fee was for “total compensation” for members in the program. The application continues to state “Only $675,000 or $500 per AmeriCorps member is being charged to the grant”. The previous two statements give a clear and concrete indication that the Council was entitled to only $500 per AmeriCorps member. Comment 40 The Council is incorrect in assuming the OIG has decided to incorporate the application as part of the agreement. We merely looked to the application for guidance as to how the $500 was originally derived by the Council. Comment 41 See comment 40 regarding the inclusion of the application into the agreement. Comment 42 The term “cycle” was merely used during the exit conference to clarify the explanation to the participants. The grant agreement clearly indicates what is expected of AmeriCorps members involved with the HUD grant. AmeriCorps members participating in the HUD grant fall into two categories: home visitors and family resource center participants. Both types of AmeriCorps members are required to be fully trained before conducting community education and outreach. The grant agreement clearly states, “Home visitors will be trained in specific curricula in lead poisoning, home environment hazards....second hand smoke, and asthma.” The grant agreement states that home visitors will “...act as personal trainers in each of the four topics.” Regarding family resource centers, the 77 agreement states, “all staff, including AmeriCorps members and VISTA members, will be trained as trainers in each of the four target areas: lead poisoning, home environment hazards, second hand smoke, and asthma.” Clearly, the grant agreement laid out stipulations that both home visitors and family resource center aides were to be fully trained in order to conduct community outreach and education. Comment 43 We disagree with the Council’s interpretation. While the Council provides a theoretical explanation, actual practices again prove the Council’s interpretation incorrect. The HUD grant consisted of four, not three, training topics. In addition, three of the training topics were bundled into one training session. We find it impractical and wasteful for the Council to work under the impression that HUD was to pay $500 per training session attended, when the $500 was not going to AmeriCorps members as part of a stipend or salary, but directly to the Council as a fee for training (which was put-on by subcontractors whose billed costs were charged to the grant separately). Comment 44 While we disagree with the Council’s interpretation, we acknowledge that two sets of AmeriCorps workers did exist: home visitors and family resource center aides. Therefore, we have modified the report and our analysis of the $500 fee, which remains as a per member fee, to include both home visitors and family resource center aides. Given the analysis in comment 42, we find that it is reasonable to allow the Council to receive payment for those AmeriCorps members, both home visitors and family resource center aides, who completed all four training topics: asthma, second hand smoke, home environment, and lead based poisoning. Using training sign-in sheets and the AmeriCorps roster, we determined there was a total of 144 AmeriCorps members that received training in all four required topics. Using the 144 eligible AmeriCorps members, we conclude that the Council is eligible to receive $72,000 in AmeriCorps fees. The first finding and associated recommendation has been modified in the report to reflect this change. Comment 45 See comment 38. Comment 46 See comment 44. Comment 47 We disagree that our conclusions were based on incomplete data. In fact, we have home visit recording charts that run well past the end of the grant period (March 14, 2004). However, we only included home visits that were conducted within the grant period, as this would provide a complete view of the Council’s performance during the grant period. Comment 48 See comment 44. 78 Comment 49 The Council failed to provide additional documentation to show that charges from Performance by Design are allowable and allocable. The Council provides exhibit one as evidence indicating the allowability of costs charged by Performance by Design. While the descriptions given in exhibit one are HUD related, the Council has yet to document the necessity of the contract. The Council identifies Performance by Design as being responsible for their quick turnaround in year three. However, the high risk letter, HUD’s continued involvement, and the severity of the Council’s nonperformance in the first two years appear to be the likely causes of the quick turnaround and urgency to complete the grant. As it stands, the Council failed to notify HUD of the contract with Performance by Design, rendering it ineligible. Additionally, many of the services performed by Performance by Design were tasked to other contractors. All trainings required under the grant were already contracted to outside agencies. Given the failure to notify HUD as required, and the existing contracts with two training agencies and an evaluation services firm, we maintain the costs by Performance by Design are ineligible. The Council has not provided enough evidence to indicate charges by Performance by Design are eligible grant costs. Comment 50 An interview with another Council employee indicated that many people within the organization were contributing with the collection of evaluation tools. Comment 51 See comment 49. Comment 52 The OIG provided a detailed explanation to the Council of what was documentation was required to support costs charged by the Sacramento Department of Health and Human Services, American Lung Association, and Minicucci Associates. In addition to the existing invoices, the Council was to obtain supporting documentation for each budgetary line item, linking the cost charged to the grant to actual services provided. Office of Management and Budget Circular A-122 states that subcontracts are also subject to Office of Management and Budget mandated cost principles. Clearly, the invoices alone for the above mentioned contractors are not sufficient documentation to determine allowability. While the Council did provide explanations as to work accomplished by all three agencies, the Council failed to obtain and provide the OIG with documentation linking services provided with costs charged. Supporting documentation is crucial to ensure the Council, and in turn HUD, was not over billed, double billed, or billed for services that were not HUD grant related. Without supporting documentation clearly linking charges from the three contractors to services provided, the costs remain unsupported. 79 Comment 53 See comment 52. While the Council claims a budget was included in the original CAP contract, the budget was not given to the OIG when requested. However, the budget alone would not determine allowability. Supporting documentation linking services completed with costs charged is still needed. Comment 54 While the OIG has given the Council numerous opportunities and over eight months to provide supporting documentation for costs related to the three primary subcontractors, the Council has failed to provide such documentation. To determine allowability for all three contractors mentioned in comment 52, the Council will need to provide supporting documentation (i.e. Contractor timesheets, contractor invoices for travel and supplies, and other documentation that details the costs charged in the invoices provided to HUD) that clearly and directly links costs charged in the contractor invoices to the HUD grant. Simply providing a budgetary line item breakdown of costs is not sufficient. Comment 55 We commend the Council in taking corrective action in upgrading its financial management systems and organizational capacity. Comment 56 Neither the report, nor the OIG, take the position that only three employees were allowed to work on the grant. However, the original and revised budgets only allocated HUD grant money for the three positions specified in the grant agreement. Comment 57 While the Council did provide timesheets, each timesheet was very vague and uninformative. The timesheets failed to allocate time based on activity and did not conform to Office of Management and Budget Circular A-122. Comment 58 The Council claims only thirteen persons worked on the grant; however, through the general ledgers and the Council’s expense details, we determined that the Council charged time for 14 persons and two categories (other and temporary staff). Therefore, we arrived at 16 different “persons” whose time was charged to the grant. The Council provided an explanation for each employee and how they were critical to the grant. However, the explanation does not take away from the fact that each person charged time to the grant without adequate supporting documentation. Comment 59 The affidavit found in Exhibit 4 of the Council’s comments is not sufficient. The signed affidavit itself is simply based on recollections of the former Deputy Director of Finance and Operations. The affidavit is accompanied by excel spreadsheets, created by the Council, with the total hours and salary amount charged by each employee on a per month basis. The spreadsheet also contains a calculation for fringe benefits. However, the spreadsheet itself is unsupported and is not sufficient to determine allowability. Office of Management and Budget Circular A-122 clearly illustrates what is required to support direct labor charges. Short of time records or a time database, the salaries remain unsupported. 80 Comment 60 The Council is requesting specific reference as to what invoices and checks comprise each of the line items in question on page 14 of the report. However, the Council was notified prior to the exit conference and during the exit conference that its written comments were to include supporting documentation, if applicable. The Council should have requested the additional information prior to submitting its written comments to allow for it to review the questioned expenses prior to drafting its written comments. However, OIG will provide information needed to clarify any questions during the audit resolution process. Comment 61 All direct charges, including travel, must be accompanied by adequate supporting documentation to support the charges. The Council failed to submit receipts and invoices to support travel expenses. Comment 62 After reviewing the Councils comments, we have concluded that two changes to the draft report are warranted: 1) the Council is entitled to $72,000 of AmeriCorps fees, rather than the $17,000 set out in the discussion draft report, and 2) the Council achieved its goal of distributing materials to family resource centers. All other findings and conclusions remain the same. Comment 63 The Council is correct in stating that the report could be revised in light of newly discovered/submitted supporting documentation. However, we found the Council’s comments to be lacking the material documentation needed to support costs and its performance claims. While we appreciate the Council’s efforts in meeting the comments deadline, we find that the comments were not sufficient to modify the report except as stated in comment 62. Comment 64 The HUD representative calculates the scores based on documentation submitted by the Council. Government time and money limitations do not allow HUD representatives to scrutinize documentation to the fullest extent. However, the OIG is tasked with making sure government funds are spent in an efficient and effective manner. Our audits include a detailed review of documents and other information to identify instances of waste, fraud, and abuse, and to meet our established audit objectives. For this reason, our review is a great deal more detailed and in depth than those conducted by HUD representatives. Therefore, while the Council may have received a good rating from HUD, our review indicated there were significant problems with the way funds were expended, the way expenses were documented, and the way the grant was executed. While the Council met most of its goals on paper, we found the goals that were met (training sessions conducted) were of limited importance compared to the home visits and families reached goals which were not effectively attained. In addition, as stated in the report, the Council executed the grant in an inefficient and ineffective manner, allowing duplicate training sessions to be completed by 81 the same person, less than timely home visits, and limiting its grant activities primarily to Sacramento County rather than throughout the 17 counties targeted in its grant agreement. Comment 65 Our findings, both monetary and non-monetary, are meaningfully related to the Council’s performance. We found deficiencies with the way funds were expended, the way expenses were documented, and the way the grant was executed. See comment 64 above. While we acknowledge the importance of the President’s remarks, we also realize that those remarks are not intended to allow for undocumented spending and noncompliance with grant rules and regulations. 82 Appendix C CRITERIA A. Regulations at 24 CFR [Code of Federal Regulations] Part 84 establish uniform administrative requirements for federal grants and agreements awarded to institutions of higher education, hospitals, and other nonprofit organizations. B. Office of Management and Budget Circular A-87, section C, subparagraph 1.j, requires all costs to be adequately documented. C. Office of Management and Budget Circular A-110, subpart C, section .21, paragraph b, subparagraph 2, requires recipients’ financial management systems to provide for the following: records that identify adequately the source and application of funds for federally sponsored activities. These records shall contain information pertaining to federal awards, authorizations, obligations, unobligated balances, assets, outlays, income, and interest. D. Office of Management and Budget Circular A-110, subpart C, section .21, paragraph b, subparagraph 7, states that recipients’ financial management systems shall provide the following: accounting records, including cost accounting records, that are supported by source documentation. E. Office of Management and Budget Circular A-110, subpart C, section 25, paragraph c, subparagraph 8, requires recipients to request prior approval from HUD, unless described in the application and funded in the approved awards, for the subaward, transfer, or contracting out of any work under an award. F. Office of Management and Budget Circular A-110, paragraph C, subparagraph 45, states that some form of cost or price analysis shall be made and documented in the procurement files in connection with every procurement action. G. Office of Management and Budget Circular A-122, attachment A, paragraph 2, subparagraphs a-g, state that to be allowable under an award, costs must be reasonable and allocable for the performance of the award; allocable thereto under these principles; accorded consistent treatment, determined in accordance with generally accepted accounting principles; and adequately documented. H. Office of Management and Budget Circular A-122, paragraph 3, subparagraph b, states that all cost reimbursement subawards (subgrants, subcontracts, etc.) are subject to those federal cost principles applicable to the particular organization concerned. If a subaward is to a nonprofit organization, Circular A-122 shall apply; if a subaward is to a 83 commercial organization, the cost principles applicable to commercial concerns shall apply; if a subaward is to a college or university, Circular A-21 shall apply; if a subaward is to a state, local, or federally recognized Indian tribal government, Circular A-87 shall apply. I. Office of Management and Budget Circular A-122, attachment A, section E, paragraph 2.b, requires a nonprofit organization which has not previously established an indirect cost rate with a federal agency, to submit its initial indirect cost proposal immediately after the organization is advised that an award will be made and, in no event, later than three months after the effective date of the award. J. Office of Management and Budget Circular A-122, attachment A, section A, paragraph 3-3.a, states that in determining the reasonableness of a given cost, consideration shall be given to whether the cost is of a type generally recognized as ordinary and necessary for the operation of the organization or the performance of the award. K. Office of Management and Budget Circular A-122, attachment B, section 7, paragraph m, subparagraph 1, requires charges to awards for salaries and wages, whether treated as direct costs or indirect costs, to be based on documented payrolls approved by a responsible official(s) of the organization. The distribution of salaries and wages to awards must be supported by personnel activity reports, as prescribed in subparagraph (2), except when a substitute system has been approved in writing by the cognizant agency (see subparagraph E.2 of attachment A). L. Office of Management and Budget Circular A-122, attachment B, section 7, paragraph m, subparagraph 2, requires employee time reports maintained by nonprofit organizations to meet the following standards: (a) the reports must reflect an after-the- fact determination of the actual activity of each employee (budget estimates (i.e., estimates determined before the services are performed) do not qualify as support for charges to awards); (b) each report must account for the total activity for which employees are compensated and which is required in fulfillment of their obligations to the organization; (c) the reports must be signed by the individual employee or by a responsible supervisory official having firsthand knowledge of the activities performed by the employee, stating that the distribution of activity represents a reasonable estimate of the actual work performed by the employee during the periods covered by the reports; and (d) the reports must be prepared at least monthly and must coincide with one or more pay periods. 84 Appendix D SCHEDULE OF INELIGIBLE AND UNSUPPORTED EXPENSES Reimbursed Drawdowns Note: The $150,000 grant advance received on September 12, 2001, was not applied to grant expenses until late October 2004 85 Rejected Drawdown Note: The Council charged $571,352 against the HUD grant; however, it requested reimbursement for $421,352 after applying a $150,000 grant advance received on September 12, 2001. 86 Appendix E GRANT AGREEMENT: STATEMENT OF WORK 87
The Child Abuse Prevention Council of Sacramento, North Highlands, California, Did Not Adequately Administer Its Healthy Homes Initiative Grant
Published by the Department of Housing and Urban Development, Office of Inspector General on 2006-07-17.
Below is a raw (and likely hideous) rendition of the original report. (PDF)